profit center analysis

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1、CHAPTER11ProfitCenterAnalysisInthischapteryoulearntoanalyzetheprofitabilityofdifferentpartsofthecompanyandidentifywherethecompanyneedstomakechangestoimproveprofitability.Youwilllearntoselectbetweenhiringasubcontractorandself-performingwork.Youwillalsolearntomonitortheprofitabil

2、ityofdifferentcustomersandidentifywhichcustomersshouldbedevelopedandwhichcustomersyourcompanywouldbebet-teroffwithout.Itisimportantforfinancialmanagerstoidentifywherethecompany’sprofitisgenerated.Thiswouldbeeasyifallactivitiesproducedthesamegrossprofitmar-gin.This,however,isnot

3、thecase.Profitcenteranalysisiswheremanagementlooksatdifferentactivitiesofthecompanyasprofitcentersthatgeneratecom-pany’sprofits.Profitcenteranalysishelpsmanagementdetermineifcertainac-tivitiesofthecompanyaremeetingitsgoals,identifiesplacesforchange,andprovidesaquantitativeanaly

4、sisthathelpsmanagementmakedecisions,suchaswhetherthecompanywillself-performworkorsubcontracttheworkouttoothercompanies.Beforeprofitscanbeallocatedtodifferentactivitieswemustunderstandtwothings.First,wemustunderstandthesourcesofprofitonthecompany’scorebusiness:buildingconstructi

5、onprojects.Second,wemustunder-standhowtoallocatethegeneraloverheadcoststothedifferentprofitcenters.Let’slookatthesourcesofprofit.SOURCESOFPROFITThereareuptofoursourcesofprofitonaconstructionproject.Theyareasfol-lows:minimumprofitandoverheadmarkuprequiredbythecompany,profitfromt

6、hebiddingandbuyoutprocess,profitfromindividualcrews,andprofitfromprojectmanagement.Forprofitcalculationtobeaccurate,thebudgetmustbearealisticestimateofthecosttocompletetheproject.Budgetsthatarefat,havelargecontingencies,aremissingitems,orhaveunderestimatedcostsdistorttheprofita

7、nalysis.Itisimportantthatbudgetsarecarefullyandaccuratelyprepared.237238CHAPTER11Thefirstsourceofprofitistheminimumprofitandoverheadmarkup.Eachcompanyshouldestablishaminimumprofitandoverheadmarkupthateachprojectneedstomeettomakeitworthwhileforthecompanytoconstructtheproject.The

8、profitandoverheadmarkup,includingmarkinguplaborandequi